If you’ve ever wanted to give to charity in a way that’s both meaningful and smart, you’re not alone.
A lot of people want to support causes they care about but feel stuck figuring out how to do it in a way that fits their life and finances. That’s where donor-advised funds, or DAFs, come in.
Think of a DAF like a special giving account. You put money or assets into it, get some nice tax benefits, and then take your time deciding which charities to support. It’s flexible, easy to manage, and gives you a lot of control over how and when you give.
More and more people across the U.S. are turning to donor-advised funds because they make giving simple, organized, and even a little fun. Whether you’re looking to make a one-time gift or build a long-term giving plan, a DAF can help you do both.
If you're ready to take the guesswork out of giving, Harness can help. Our fundraising platform was built to make it easier to give, and easier for nonprofits to grow. Let’s make giving work better, together.
What is a donor-advised fund and how does it work?
A donor-advised fund (DAF) is kind of like a savings account, but for giving. You put money or other assets into the account, and that money is set aside just for charity. You don’t have to choose where it goes right away, you can take your time.
Here’s how it works: You make a donation to a sponsoring organization (usually a public charity or financial institution), and that money goes into your DAF account. Right away, you get a tax deduction. From there, the money can be invested to grow over time. When you’re ready, you “advise” or recommend which charities should get grants from your fund.
It’s simple, and it gives you a lot of flexibility. You stay involved in the process without having to handle all the details every time you want to donate. The sponsoring organization handles the paperwork and sends the money to the charities you choose.
Plus, you don’t lose control, you keep what’s called “advisory privileges.” That means you decide when, where, and how much to give, while the sponsoring group does the heavy lifting.
Contribute cash or other assets to a donor-advised fund
One of the best things about a donor-advised fund is how flexible it is when it comes to what you can give. You’re not limited to just writing a check. You can contribute cash, of course, but also things like stocks, mutual funds, real estate, or even crypto, depending on the sponsoring organization.
Why does that matter? Because donating things like stocks or property that have gone up in value can be a smart tax move. You can avoid paying capital gains tax on those assets, and still get a full tax deduction for the current value. That means more of your money goes toward the causes you care about, not to taxes.
Once you make the contribution, the money is in your DAF and ready to be put to work. You don’t have to decide right away where it goes. You’ve already done the big part: committing those funds to charity.
Invest your donation for tax-free growth
After you put money or assets into your donor-advised fund, that money doesn’t just sit there, it can grow. Most DAF sponsoring organizations let you pick from a few investment options, like mutual funds or index funds. Your donation is invested, and any growth is tax-free.
This part surprises a lot of people. You make a donation, get an immediate tax deduction, and then your money can grow over time, without being taxed again. That means, later on, you might have even more to give than you started with.
You don’t have to be an investment expert. The sponsoring organization handles the details, and you can usually choose an approach that fits your comfort level. Whether you want to be conservative or go for higher growth, there’s often a strategy that matches your goals.
This is a big reason why many donors use a DAF for long-term giving. You can let your donation grow while you take your time deciding which charities to support.
Recommend grants to charitable organizations
Once your donor-advised fund is set up and funded, you’re in the driver’s seat when it comes to giving. When you’re ready, you recommend grants to the charitable organizations you care about. The sponsoring organization takes care of the actual transfer, but you get to decide where the money goes.
This part is super flexible. You can give to one nonprofit or spread out your support across several. You can give all at once, or a little at a time. Some people use their DAF for year-end giving, others use it to support causes during emergencies or throughout the year.
And because DAFs are managed by public charities or financial institutions, they’ll usually make sure the organization you want to support qualifies for tax-deductible donations. That way, you don’t have to worry about checking all the legal boxes, they handle that for you.
You’re not locked in, either. If your priorities shift, you can support different causes as your goals or values evolve. It’s your giving, your way.
Comparing donor-advised funds and private foundations
Donor-advised funds (DAFs) and private foundations both help people support the causes they care about. But they work differently, and one is usually a lot easier to manage than the other. Here's how they compare:
Costs
- DAF: Low or no startup costs, and administrative fees are generally low.
- Private foundation: High setup and legal costs, plus annual administrative expenses.
Control
- DAF: You keep advisory privileges, but the sponsoring organization makes the final grant decisions.
- Private foundation: You have full control over grantmaking, staff, and operations.
Setup complexity
- DAF: Simple to open. You can get started quickly through a public charity or financial institution.
- Private foundation: Complex to set up. You need legal help, a board, and ongoing compliance.
Tax benefits
- DAF: Higher tax deduction limits. You can deduct up to 60% of your adjusted gross income for cash, and 30% for assets.
- Private foundation: Lower deduction limits, 30% for cash, and 20% for assets.
While both options help you achieve your philanthropic goals, donor-advised funds are more accessible for the average donor. They offer the flexibility and benefits of strategic giving without all the overhead.
Tax benefits of donor-advised funds
Receive an immediate tax deduction
When you contribute to your donor-advised fund, you get a tax deduction in the same year, even if you decide to give the money to a charity later. Cash donations can usually be deducted up to 60% of your adjusted gross income, and non-cash assets like stock or real estate are capped at 30%.
Avoid capital gains tax on appreciated assets
One major advantage of using a DAF is being able to donate assets that have increased in value, like stocks, mutual funds, or even cryptocurrency. Instead of selling them and paying capital gains tax, you can donate them directly. You avoid the tax, and still get a deduction for the full fair market value. That means more money goes to charity.
For example, if you bought stock for $1,000 and it's now worth $5,000, donating it directly through your DAF avoids the capital gains tax on the $4,000 gain, and you can deduct the full $5,000.
Reduce estate tax with legacy giving
DAFs can also be part of your estate planning. You can name a successor to your DAF, so your family can continue your giving. Or you can name your favorite charities as final beneficiaries. Either way, the assets are removed from your estate, which can help reduce estate taxes and keep your giving going for future generations.
Understanding DAF sponsoring organizations
Every donor-advised fund needs a sponsoring organization. This is the group that holds your donation, manages your DAF account, handles the legal side of things, and sends the money to charities when you recommend a grant.
There are a few main types:
- National charities: These are large organizations connected to financial institutions. They often have online platforms, investment choices, and tools for donors. Examples include Fidelity Charitable and Vanguard Charitable.
- Community foundations: These focus on specific cities or regions. If you want to support local causes or work closely with staff, a community foundation might be a good fit.
- Single-issue charities: These serve one area of interest, like education or the environment. Your grants usually go to nonprofits within that specific focus.
Each type has pros and cons, so it helps to think about what matters most to you, like investment options, support, fees, or local impact.
When choosing a sponsor, look at:
- Their fees and minimum contributions
- What types of assets they accept
- Their track record and transparency
- How much flexibility you have with grantmaking
The right sponsoring organization should make giving easy, meaningful, and aligned with your goals.
Opening and managing a DAF account
Starting a donor-advised fund is easier than most people think. You don’t need to be a financial expert or have a huge amount to give. Here’s how it usually works:
1. Choose a sponsoring organization
Decide who will manage your fund. This could be a national DAF sponsor tied to a financial institution, a community foundation, or a single-issue charity. Look for one that fits your giving goals and offers the flexibility you need.
2. Make an initial contribution
Once your account is open, you’ll make your first donation. This could be cash, stock, or other assets. After the donation is accepted, you get your tax deduction for that year.
3. Select your investment options
Most sponsoring organizations offer a few ways to invest the money in your DAF. You can usually choose from options like mutual funds or index funds. The goal is to grow your donation tax-free until you’re ready to give.
4. Recommend grants
You decide when and where to give. Just log in to your account, pick a qualified charitable organization, and submit your grant recommendation. The sponsoring organization takes care of sending the funds.
Managing your DAF is simple. You can track your balance, see your giving history, and plan future gifts, all from one dashboard. It’s designed to make giving easier, more strategic, and more personal.
How nonprofits can receive donor-advised fund gifts
Donor-advised funds aren’t just helpful for donors, they can be a powerful source of funding for nonprofits, too. But many organizations miss out simply because they don’t know how to attract or engage DAF donors.
Here’s how nonprofits can start tapping into this growing pool of giving:
Actively promote donor-advised fund giving
Make it clear on your donation page that you accept DAF gifts. Include a button or message that says something like “Give from your donor-advised fund,” and link to tools like DAF Direct if you can. Just seeing that option can remind donors to use their DAFs.
Talk to your major donors
Ask your top supporters if they have a DAF. Many do, but they might not think to use it for your organization unless you ask. A simple conversation or email can open the door to a grant.
Keep your profiles up to date
Platforms like Guidestar and Charity Navigator are used by DAF sponsors and donors to vet organizations. Make sure your profiles are current and complete. It builds trust and helps donors feel confident about giving.
Build relationships with community foundations
If your local DAF sponsor is a community foundation, get to know the team. They often recommend nonprofits to their donors, especially when they understand your mission and impact.
Receiving DAF grants isn’t complicated, but it does take some intentional outreach. When nonprofits make it easier for donors to give this way, it pays off, not just in dollars, but in lasting relationships.
The growing role of donor-advised funds in philanthropy
Donor-advised funds are becoming a major force in charitable giving. In the past, DAFs were mostly used by wealthy families or big donors. But today, more and more everyday givers are using them to support causes they care about, on their terms.
In the United States, DAFs are now one of the fastest-growing ways people give. Billions of dollars are contributed to these accounts every year, and grants to charities from DAFs continue to rise. This growth means nonprofits need to understand how they work, and how to connect with DAF donors.
DAFs also give donors more flexibility than ever. People can contribute once, then support multiple charities over time. Others use DAFs for emergency giving, or to respond quickly when a crisis hits. Some use them to pass along values and giving traditions to the next generation.
At the same time, DAFs are changing the way donors think about impact. With tools to track giving, invest donations, and plan long-term, donors can be more thoughtful, and more strategic, than ever before.
Whether you're a donor or a nonprofit, DAFs are no longer just a financial tool. They're shaping how modern philanthropy works, and who gets to be part of it.
Donor-advised funds, made simple
Donor-advised funds make giving easier, more flexible, and more powerful. Whether you’re just getting started with charitable giving or looking to build a long-term legacy, a DAF gives you the tools to do it on your terms.
You get the chance to support causes you care about, enjoy meaningful tax benefits, and stay involved in your giving, without the stress of managing everything yourself. And because DAFs can grow over time, your impact doesn’t stop with one gift. It keeps going.
At Harness, we believe giving should be simple and impactful. Whether you're a nonprofit trying to connect with DAF donors or a giver looking to make your donations go further, we're here to help.
